… loosening pervasive restrictions on cross-border labour movement promises large gains for developing and developed countries. It helps to plug labour shortages in rich countries with ageing and shrinking populations, and with relatively affluent people unwilling to do low-paid menial work. It provides an outlet for people in poor countries in search of a better life.—Razeen Sally, Trade Policy, New Century (2008)

It is often heard from academia and from the popular press. Workers can’t be found in rich Western countries to do so-called menial work. Here is a headline from the Daily Telegraph (January 28, 2012): “Lucky country becomes lazy: Migrant workers to do ‘dirty’ jobs.” It plays out particularly strongly in the United States when the issue of illegal immigration is raised. It is the argument in waiting whenever and wherever questions are raised about large-scale immigration. It goes something like this.

Western societies have become so rich that native-born populations refuse to do “menial” work. Accordingly, in order to prevent the whole economic system from gumming up, people need to be brought in who are willing to get down and dirty for a few dollars. The alternative is a dystopian nightmare: rubbish piling up in the streets, dirty hospitals, unsanitary public toilets, untended parks and gardens, unpicked fruit and vegetables and, alas, rich people having to clean their own mansions.

Is there any substance at all to this argument? No, there is not. It is, in a word, nonsensical. It has no proper basis in economics. It also represents a failure of both imagination and collective self-belief. Only by admitting masses of low-skilled arrivals can prosperous and mature Western societies thrive? It is ridiculous on its face. Yet it is widely supported.

Some of this support is tainted by self-interest. Unsurprisingly, business lobby groups and crony capitalists favour the import of cheap labour. Left-wing politicians see low-skilled migrants as future voters to help them and their parties win parliamentary seats. Transnational professionals, with a loosened attachment to their country of birth, value the ready availability of cheap services wherever they happen to be. Moist-eyed globalists, echoing John Lennon, fondly imagine a future world as one melting pot. I don’t want to focus on these assorted carpet-baggers and utopian dreamers. They have axes to grind and no insights to offer.

My focus is on a subset of those with economics nous. They might describe themselves as classical liberals or as libertarians. They are not necessarily in favour of completely open borders but they see strong economic advantages flowing from free trade and from the free movement of labour. In my view, this un-nuanced, “hang the consequences”, way of looking at things is well past its use-by date. It was fine in the relatively disconnected world of the haves and have-nots in the nineteenth and early twentieth century. It is untenable in the highly connected modern world. Too many people are disadvantaged and dispossessed which, in turn, provides a platform for socialist demagoguery, made worse if Islam is in the mix.

It is a sound working hypothesis that freeing up the movement of capital, goods and labour increases global economic output. However, in any defined period of time—which may be a long time in the life of a human being—not everybody will benefit. Some will become worse off; some much worse off. I don’t think anyone would disagree with this. The evidence is stark. But when I say that some will become worse off I can be specific so far as one group is concerned. Unskilled workers in rich countries, bereft of representation in all corridors of power, will become worse off as a result of the inward movement of cheap labour from poor countries. The question is whether this is a price which must be paid to ensure that “menial” work is not left undone. I will go to physics as a jumping-off point to economics.

Juxtapose two objects, one hotter than the other. Heat will travel from the hotter object to the cooler. It will not travel the other way. This is called entropy; a reliable law I understand. The hotter object will cool unless an external source of heat is applied. I would like to extend the application of the law beyond the world of science to the economics sphere. It does not travel perfectly. Nonetheless, it is instructive.

Take a carpenter and his apprentice. The impart of knowledge and skill flows one way. However, unlike the transference of heat, the carpenter, in imparting his knowledge and skill to his apprentice, suffers no loss. In fact, teaching can hone the mind so that both teacher and pupil benefit. There is no entropy immediately evident. But notice that teaching is a complex input (akin to an external heat source) which compensates for the inevitable decline through age of those in possession of knowledge and skills. Entropy would have its way if not countered. Capitalism can be thought of as the carpenter and his apprentice writ large and, of course, much more complexly and dynamically.

Capitalism resists entropy. It is akin to a living system which constantly takes in complex inputs, as directed by price signals. Occasional lapses apart, this allows capitalistic economies to continually grow and develop. For example, shortages of particular resources, energy, materials or labour provoke price changes which encourage and steer discoveries, technological changes, innovations, investment, labour movements, production and consumption in ways to overcome or circumvent shortages. Of course, it is not guaranteed to work. It just always has, notwithstanding the dire predictions of the Club of Rome, Paul Ehrlich and other assorted Jeremiahs. And that is about as conclusive as it gets in any field of inquiry into large, complex and dynamic systems.

Contrast capitalism with the performance of variants of socialism and communism. Past experiments in Eastern Europe, in China, in Cuba and most recently in Venezuela show that entropy holds sway. Enervating corruption and cronyism replace price signals in steering economic activity. Deprived of the complex inputs required to sustain and nourish economic development, decay and immiseration take hold. Similar outcomes result from tribalistic, feudalistic and theocratic forms of society. It is therefore not surprising that the Pew Research Center (in its 2011 study “The Future of the Global Muslim Population”) noted that all non-European Muslim-majority countries are in the less developed regions of the world. It is also no surprise that people living in backward societies want to escape to those where capitalism prevails. Like the cooler object, they want to share the warmth.

That they want to share the warmth is evidently true. That they are needed by those enjoying the warmth has no factual basis. And so back to the topic at hand. Mature capitalistic economies do not need to import unskilled labour to undertake run-of-the-mill tasks. It is a mistake of the first order to think they do.

It doesn’t matter whether there is notional full employment or underemployment. If particular jobs are left unfilled for any lengthy period it is because the price on offer is too low. This most particularly applies to jobs requiring little knowledge or skill. Such jobs can be filled without too much difficulty if the price is right. Though, as an aside, perhaps the price would be lower if categories of unskilled work were not stigmatised as being “menial”. All productive work, well done, is equally noble. Unemptied garbage bins are a salutary reminder of that, if one is needed.

Social-welfare safety nets complicate the picture to an extent, by putting a floor under wages. But this does not negate the principle. If a municipality has difficulty in finding street sweepers, it is because the wage they are offering is too low. There is nothing more to it.

Society might want to adjust the relationship between welfare and work to provide more incentive to work for lower wages. This is a good thing to do. It helps out those wanting to employ low-skilled labour and also those who might otherwise be languishing out of the workforce. But it doesn’t alter the basic proposition that capitalism provides the answer to shortages of whatever kind. Market-clearing price movements can be relied upon to fix the problem. Sometimes employers don’t like the result. Tough. That is no reason why they should be helped out by opening borders and thereby competitively disadvantaging native-born workers.

Well-documented experience in the United States is instructive. For example, from 2000 to early 2017, the labour force participation rate among immigrants has remained broadly constant while it has fallen markedly among native-born Americans. Pointedly, the employment rate among the native-born who did not complete high school fell from 52 to 42 per cent; and among the same group who are black from 43 to 32 per cent.

The above data is from a study (“The Employment Situation of Immigrants and Natives”) published in May 2017 by the Center for Immigration Studies. That same organisation published a study in July 2013 (“Immigration Gains and Native Losses in the Job Market 2000 to 2013”) which included this “remarkable” finding based on official household survey data:

Over the last 13 years [2000 to 2013] all of the net gain in the number of working-age (16 to 65) people employed has gone to immigrants. This is truly remarkable because natives accounted for two-thirds of population growth among the working-age population, but none of the net gain in employment. In short, there was a large increase in the number of potential native-born workers, but no net increase in the number of native-born workers under age 65 actually working.

“The idea that there are jobs Americans don’t do is simply not supported by the data,” the study concluded. “Moreover, there is good research showing that immigrants displace natives from the labor market.” Not everybody agreed with this conclusion and there is no shortage of analyses which purport to demonstrate the advantages of unskilled immigration. This shows that a lot of people simply don’t understand the way markets work. Harvard economist George Borjas, who has written extensively on immigration, makes the point simply (Politico, September/October 2016):

When the supply of workers goes up, the price firms have to pay to hire workers goes down … because a disproportionate percentage of immigrants have few skills, it is low-skilled American workers, including many blacks and Hispanics, who have suffered most.

It is a demonstrable fact—look at unemployment rates—that there are more than sufficient numbers of low-skilled native-born people in all Western countries to fill all low-skilled jobs. Exactly what kind of belief system is it that says that those who are native-born continually grow so irredeemably idle that they have to be dumped into the margins of society and continually replaced with immigrants? It is certainly far from uplifting.

This is the Washington Post quoting a forty-year-old black American, Keith Bellisaire, doing casual work when he can find it: “I’m ready to work and I can work as hard as anyone. Sometimes I wonder if there is discrimination. I don’t think the Spanish people are trying to take away our jobs, but I wish I had more chances to show what I can do.”

I don’t want to be starry-eyed about this. Some people will not work whatever the inducement. However, the market is a powerful persuader and will pitch wages at levels required to draw sufficient numbers of people into the workforce. Rising wages will also induce employers to invest in labour-saving technology; even in job-killing robots, we are told, while being asked to believe that ever more immigrants are required to do unskilled work. Untangle that if you can.

Left to itself, the market works in numerous ways to remedy shortages. The outcome of coming in over the top and applying a simplistic solution of keeping migration up and wages down is not pretty. It produces a growing underclass, alienation, rotting neighbourhoods, poverty and crime; and in Europe, because of the character of immigration, cultural segregation. If it were to continue it could possibly enervate capitalism and, in so doing, tear at the fabric of Western society.

Whatever the injection, circumstances and quantity matter. An influx of unskilled labour can benefit a developing economy undergoing rapid growth. However, a substantial and continual influx of unskilled labour into a mature economy is harmful. It keeps wages down at the lower end and makes it more difficult for native-born unskilled workers to find employment. Income inequality rises.

Now, to be clear, inequality is an essential characteristic of a prosperous free-market economy. Set aside the ill-formed concerns of Thomas Piketty (Capital in the Twenty-First Century) and his leftist political fellow travellers like Bernie Sanders, Jeremy Corbyn and Bill Shorten. In the normal course, the more unequal is income and wealth the more saving will be done (by the rich) to fuel investment and growth. However, not all inequalities are equal. The kind of inequality resulting from mass unskilled immigration is of an untoward kind. It is not a normal outcome of capitalism. It is pernicious inequality which, at the lower end, means underemployment and stagnating wages. It is problematic for societal harmony.

The Economics Policy Institute is a left-leaning think-tank in the US, so you can take its economic analyses and prescriptions with a grain of salt. This is borne out in a January 2015 report on wage stagnation in the United States (“Wage Stagnation in Nine Charts”) in which the “one per cent” and highly-paid CEOs are singled out for condemnation. But that is by the way. The data is telling. This shows that the real wages of those in the bottom tenth percentile fell by 5 per cent in the period from 1979 to 2013. In the same period, middle-income earners (fiftieth percentile) experienced only a paltry increase of just 6 per cent—less than 0.2 per cent per year. Meanwhile, high-income earners (ninety-fifth percentile) were riding high with an increase of 41 per cent. I can’t vouch for these numbers, but they don’t seem to be too far out of kilter with other information on wage stagnation at the low to middle end. Moreover, the experience in the US is mirrored to one extent or another elsewhere.

Figures from the UK’s Office for National Statistics (“Analyses of Real Earnings, July 2017”) show real wages stagnating in the UK between January 2005 and January 2017. In Australia, the Reserve Bank in its June Quarter 2015 Bulletin (“Why is Wage Growth So Low?”) commented as follows: “The recent low wage growth has not been unique to Australia. Internationally, wage growth has been lower than forecast for several developed economies.” And, pertinently, added this footnote: “an increase in the global supply of low-skilled labour over past decade may have eroded the bargaining power of competing labour in developed economies”.

Take a step back. Riches for a relative few while many of the native-born are faced with either no employment or no material progress, more crowded schools and hospitals, and fragmenting neighbourhoods. This might well be a recipe for civil unrest. It may not necessarily lead to riots in the streets, but it may well lead to a susceptibility to beguiling socialist solutions offered by the likes of Sanders and Corbyn and, to a lesser extent, Shorten.

Of course, in my view, the election of Donald Trump is also a by-product of civil unrest. In his case, however, he found, and was able to sell, a formula (lower taxes, fewer regulations, and better trade deals) which largely, on the whole, underpins capitalism. Perhaps only in America would such salesmanship work. Alternatively, perhaps the unique Mr Trump is the difference. I think it is a bit of both. Whatever the explanation, the result is beneficial.

It is a seeming irony. Those on the Left support inflows of the unskilled yet bemoan growing income inequality. Their economics is wanting. Or is it? After all, dollops of socialism can’t be inserted into Western economies when things are going swimmingly. There may be method in simultaneously holding to these two conflicting narratives.

Adding to the problem of large-scale immigration is its character in some parts of the world. Quite apart from the contemporary surge in refugees from Syria and Libya, Muslim migration into Western and Northern Europe has bulked proportionately large in recent decades. For example, according to the Pew Research Center, Muslims constituted an estimated 69 per cent of immigration into France in 2010, 45 per cent into Sweden, 42 per cent into Holland, 31 per cent into Belgium, and 28 per cent into the UK. That Muslims are fleeing poverty is not surprising. Islam and economic prosperity are rarely coincident.

Islamic cultural values do not produce the kind of enlightened societies within which capitalism and prosperity flourish. And, unfortunately, too many Muslim immigrants bring these same discordant theocratic values with them. In isolation, the resulting adulteration of Western secular values (by which I mean the separation of church from state) is unlikely to be potent enough to materially affect the vibrancy of capitalism. But ally Islamism with socialism and the outlook becomes more problematic.

It was no accident in Michel Houellebecq’s novel Submission that Muslim leader Muhammed Ben Abbes forms an alliance with the Socialists to take power. In real life, it is evident that Islam and the Left are in cahoots. Take a look, as examples, at Corbyn’s past fraternisation with Muslim fundamentalists; at the background of Labour’s London mayorSadiq Khan; at the deeply concerning Islamist pedigrees of Keith Ellison and Linda Sarsour within the US Democratic Party; and at the ALP’s pandering to Muslim voters in key constituencies by contemplating the unilateral recognition of Palestine. Some apologists for the Left call these Islamic sympathisers “regressives” to distinguish them from the main body of “progressive” leftist thought. However, they increasingly seem more mainstream than fringe.

“Who would have thought it?” writes refreshingly traditional Labor man Peter Baldwin (in the Australian on July 14): “Self-styled ‘progressives’ in a de facto alliance with Islamist fanatics to marginalise and suppress religious dissenters?” In this case he was referring to the hostility of the Left to Sarah Haider, founder of Ex-Muslims of North America. In the general case, it is evident that something is gluing together intolerant religious fundamentalism with irreligious progressivism. Perhaps both sides of the perverse partnership see it profanely as the route to political power. Whatever drives the partnership, its implications for capitalism are profound and disturbing.

The price extracted by Islamists will be ever more Muslim immigration and sharia law. The price extracted by socialists will be ever-higher taxation and state encroachment into economic decision-making. Low to middle-income earners will suffer most as capitalism, as resilient as it is, creaks under the weight. Whether religious police or commissars will eventually keep order I don’t know. But, as in Houellebecq’s novel, I suspect religious fundamentalists will win out. After all, socialists have only Marx on their side. Muslims have Allah.

This is too pessimistic, even for me. On balance, I am with President Trump. “I declare today for the world to hear that the West will never ever be broken,” he said in his inspirational Warsaw speech on July 6. “Our values will prevail. Our people will thrive. And our civilisation will triumph.” But, at the same time, it’s best to understand that there is a fight under way. People on the other side know that. Too many of the “good and true” on our side appear to want to pretend otherwise.

To come full circle and into more prosaic territory. Mature capitalist economies do not need to import cheap labour. This is economic mythology. Bear in mind that I am not talking about the potential advantages of selectively bringing into any society those who possess required valuable skills which are hard to build in any short period of time. I am talking about a substantial and continual inflow of unskilled migrants.

Immigration should be wholly based on the interests of the citizens of recipient countries; including those who are poorly skilled and educated. Inviting or letting in large numbers of migrants to compete at the lower end of the job market tears at the fabric of society, brings capitalism into disrepute, and allows socialism a political foothold. It is worse still if immigrants bring with them a backward theocratic culture and a proclivity to form alliances with socialists. Socialism on any substantial scale inevitably produces immiseration as entropy gains ground; before possibly degenerating into despotism. Of course, that’s a stretch at this stage; and it is, in any event, another story, which Hayek in The Road to Serfdom has already told.

8 comments

lloveday –25th November 2017

“Heat will travel from the hotter object to the cooler. It will not travel the other way”.
Ok, but I can see it as “Cold will travel from the cooler object to the warmer” – may not be sound physics, but you are extending it to an example of economic behaviour, so I’ll make a different extension – I come home hot and bothered after slaving all day under the hot sun, and jump into the pool. The pool cools me; I don’t warm the pool (other than technically).

Congratulations to Peter Smith! He skillfully demolished another leftist theory by applying the devastatingly powerful logic of genuine capitalism.

en passant –25th November 2017

Peter,
You have covered a ‘complex’ subject in a comprehensible way. You may remember Barry Jones ‘Sunrise Australia’ in which he called for the ‘Smart Australia’ to rise up and leave the mundane manufacturing and routine jobs to others. This was a text we were asked to comment on (and be supportive of) in university economics classes.

I immediately asked “How many Australians are needed as design engineers, researchers, leading edge inventors and technocrats?” I estimated 98% of the population do when low-skilled jobs are eliminated?” I never received ANY answer, but was dismissed as a Luddite on the wrong side of history as ‘globalisation cannot be stopped’.

Oz has now reaped the results of this thinking – as you describe.

I moved overseas to a more realistic country (that worships coal-fired cheap electricity) and social cohesion. They have no welfare payments, but an interesting approach when dealing with the poor and unemployed. spread throughout the city and suburbs are ‘garbage points’ where a trolley with a bin on it is stationed. Need money for food? Turn up and sign in at 6.00am. These ‘volunteers’ are then driven around and dropped off at each point and given approximately 1km of road to sweep and clean. The also cut the median strip grass, trim the trees and paint the road edges. The city where I live is immaculate. A truck comes around about 3.00pm empties the bins and pays them.

The young woman who daily cleans the stretch in front of my home has built herself a shelter just off the road in the undergrowth. She is generally finished by noon, so she slings her hammock and settles down for a siesta. She can sometimes be heard singing. Such pleasure in he life, yet she has very little. What a Wonderful World with such people in it!

Still no job and you need more money? Come back next day.

Sometimes there are too many volunteers, so they are bussed to the edge of town to clear rubbish from creeks or just to tidy up the road edges.

en passant –25th November 2017

Part of my comment ‘disappeared’! It should read:
“I estimated <2% of the population. So, what do 98% of the population do when low-skilled jobs are eliminated?”

ian.macdougall –25th November 2017

An engaging article. I agree with much of it. So cheers to Peter Smith.
HOWEVER, some strata of our society are in the delightful (?) position of being able, directly or indirectly, to set their own pay. Wherever in field of study we see exponential increase (eg growth in populations, heat generated by wildfires, pandemics, and executive pay) there is a positive feedback loop somewhere in the picture.
So a company board appoints a Chief Executive Officer (CEO). The CEO, in consultation with the Board perhaps, then hires and fires subordinate staff, and again, perhaps in consultation with Board members, sets all pay scales below his or her own. But often, his/her own pay setting and perhaps also the higher executives is done by external consultants: the ‘independent’ Parliamentary Remuneration Tribunal being a pretty good example and far more often in the news than are the equivalent corporate consultants.
And how are the salaries and other perks of the members of the Remuneration Tribunal set? Why, in the light of what they could expect to be paid if working at the corporate executive or MP level, of course. So the higher the rewards for the executives, the higher the rewards for the members of the ‘independent’ tribunals and consultant panels.
This positive feedback effect is all we need to explain why executive and parliamentary monetary rewards and perks have so raced ahead of those of the general population since Bob Hawke’s great ‘Accord’. That one caused the rate of general wage increases to effectively flatline, and to barely keep pace with the rate of inflation; though not of course with the common settings of pay and perks for union officials.
(NB: If the signs all over the shopping centres announcing monster pre-Christmas sales and discounts are anything to go by, we could be in for a lot of belt-tightening in the New Year. I think it most likely in the retail sector.)
And as my sub to QO is about to cut out, this will likely be my last post on this site.
(Cue cheers from the usual suspects, towards whom of course I bear no ill-will.)

I wish all of this site’s motley crew a merry Christmas and a happy and prosperous New Year.

Keith Kennelly –26th November 2017

Thank you Ian and the same to you.

I have a Christmas present for you.

Physicists have found sheets of single atom graphene continuously move and alternate between convex and concave surfaces.
When anodes are placed either side an electrical impulse is created continuously.

This means no need for batteries.
AND may eventually lead to a sustainable energy source.

AND COULD lead to no need for fossil fuels, or other renewables.

This is the very latest in power generation technology.

Check out an app called Flipboard and its technology section.

There we’d all win!

Cheers

ian.macdougall –26th November 2017

Keith: Thanks. Will do.

David Barnes –26th November 2017

Another great article from Peter Smith. Who could argue about the folly of mass third world immigration into the West.
However Peter has a blind spot in his economic thinking. It’s a big one. With respect to see what it is might I recommend he ( and any others who might like to know what it is) type into Google the words Dr. Tim Morgan Perfect Storm. Entropy and economics in reality and it isn’t good news.